Balanced Scorecard and Performance Measurement Essay

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To: Board of Directors of Caribbean Brewers, Inc.

From: Advisor, Caribbean Brewers, Inc.

Subject: Report on the Performance Measurement System for Cost and Quality Control

Date: April 17, 2014

Performance Measurement Background

Since Gera International purchased a 75 percent share of the brewery, the performance measurement system has changed immensely. Presently, the production personnel can earn a bonus if production costs do not exceed 43% of sales. In the past, the bonus was based on a combination of average total production costs and quality control, which has since been eliminated. This change in performance measurement has also affected JJ’s benefits, eliminating his annual dividend, and decreasing his ownership in the company from 25% to 8%.

Cost Control

JJ, the production manager, is extremely displeased with the new performance measurement system for a variety of reasons. Regarding costs, the production personnel’s bonus is based on many factors which are out of their control. The production facilities were expanded in 2008 in order to double production capacity. Since the expansion, the plant began producing Gera beer as well. As a deposit cannot be collected on exported Gera beer bottles, all bottling costs are expensed and charged solely to Caribbean Brewers Inc., resulting in a cost increase of over $6.1 million in 2009.
Depreciation is also included in determining total production costs as a percentage of sales for bonus purposes. As a result of the plant expansion, depreciation has increased, resulting in greater overhead and therefore more overall production costs. Management was behind the decision to double the plant size and thereby increase depreciation costs. These new costs cannot be controlled by production personnel. There are also quite a few other fixed costs that cannot be controlled by personnel, yet are used to determine total production costs and bonuses.
Finally, there has been a modification in the manner in which the bonuses are measured, changing from production cost per case to production cost as a percentage of sales. This is a major issue, as the production workers have almost no control over sales and prices. Any negative change in sales would affect the production cost as a percentage of sales, leading to a lower bonus and dissatisfied workers.

Quality Control

When it comes to quality, there seems to be a disagreement in what Gera International and Caribbean Brewers believe is the perfect quality of Gera beer produced at the Caribbean Brewers plant. Recently, Gera has complained about the quality of Gera beer exported and has refused to pay for it.
JJ has been very adamant about the consistent quality of the beer. He has even suggested that Gera is making false allegations in order to avoid paying for some of the shipments and reduce costs. From JJ’s Beer Quality Assurance report, we can see that the quality of beer is based on three different attributes: specifications, consistency, and sanitation. Nonetheless, there does not seem to be any sort of agreed upon method of measuring the quality between both parties, therefore resulting in differences in quality perception.
These new changes in the performance measurement system are creating discontented and apathetic employees. JJ, as the master brewer, is an
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